FRANKFURT: The European Central Bank (ECB) could restore a key channel of financing to Greek banks if Athens agrees to continue its program of reforms, Bundesbank President Jens Weidmann said on Thursday (Friday in Manila).
Greece formally requested a six-month extension to its EU loan program on Thursday.
In its letter to Brussels, the country’s new leftist said it also wanted the ECB to resume financing Greek banks under the conditions they enjoyed until earlier this month.
The banks had been exempt from an ECB rule, which normally prevents the country’s junk-rated debt being used as collateral for loans.
The ECB suspended that waiver on February 4, depriving Greek banks of a key source of much-needed cash.
Since then the banks have been surviving off emergency loans from Greece’s central bank which have to be approved by the ECB.
“The waiver is tied to particular conditions, which were clearly defined, and if these conditions were respected again, the waiver could be valid again,” Weidmann, who sits on the ECB’s Governing Council, told a conference at Frankfurt University.
His remarks were taken to mean that the ECB could turn back on the direct financing tap if Athens agreed with Brussels on an aid program.
Weidmann hastened to add, however, that Greece’s letter to the EU “gave no indication of whether these conditions will be fulfilled again.”
The radical left government of Greek Prime Minister Alexis Tsipras has rejected the austerity measures that underpin its current bailout package.
“We cannot really determine . . . if the Greek government is ready yet to respect the commitments of the current program,” Weidmann said.
Eurozone finance ministers are to meet again in Brussels Friday to discuss Greece’s request for a loan extension.
Without further international aid Greece runs the risk of a default.